Aluminium Is Entering A New Era

The path to a net-zero economy has dual implications for aluminium on both the supply and demand side. That may see the aluminium market shift into deficit in the medium term. In the short run, rising disruption from China has already suppressed production growth this year.

A worker at an aluminium factory in Hebei Province, China

The dual-implication from ‘green’ recovery and net-zero economy

The path to a net-zero economy has dual implications for aluminium. First, the supply growth of primary aluminium is contained, especially from China. As the world's largest primary aluminium producer, China's total capacity is likely to hit its 'cap' during the country's 14th Five Year Plan (FYP) and primary production could plateau in the longer term.

Secondly, world aluminium demand growth is set to shift up a gear driven by energy transition-related sectors such as transportation and renewable energy from China, the US and Europe. This is also driven by major economies' pursuit for 'net-zero' and the speeding up of steps towards electrification and renewable energy. That's a trend that has already seen a fascinating growth in electric vehicles sales in European countries and China.

Aluminium's price will need to stay higher for longer so to incentivise more supply

This trend could see the global aluminium market continue tightening into a deficit towards 2025. Elsewhere, the price will need to stay higher for longer so to incentivise more supply. The increasing awareness about climate change among consumers along with growing pressure on producers to adopt low carbon materials should boost demand for low carbon aluminium, leading to a massive structural deficit of aluminium with a low carbon footprint in the future. 

Primary supply growth to plateau

The last decade has seen rapid capacity growth, especially from China. However, as the country is now pushing towards peak carbon and carbon neutrality, this puts pressure on the growth of primary aluminium production growth. The state authorities have been in talks to work out a plan to align with national goals. The Nonferrous Metals Industry Association (CNIA) has set a provisional goal to bring emissions to a peak by 2025 and cut them by 40% by 2040.

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Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...

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